Document Type
Discussion Paper
Publication Date
5-1-2010
CFDP Number
1760R
CFDP Revision Date
2013-10-01
CFDP Pages
82
Abstract
This paper solves for the set of equilibrium payoffs in bargaining with interdependent values when the informed party makes all offers, as discounting vanishes. The seller of a good is informed of its quality, which affects both his cost and the buyer’s valuation, but the buyer is not. To characterize this payoff set, we derive an upper bound, using mechanism design with limited commitment. We then prove that this upper bound is tight, by showing that all its extreme points are equilibrium payoffs. Our results shed light on the role of different forms of commitment on the bargaining process. In particular, we show that it is the buyer’s inability to commit to a contract before observing the terms of trade that precludes efficiency.
Recommended Citation
Gerardi, Dino; Hörner, Johannes; and Maestri, Lucas, "The Role of Commitment in Bilateral Trade" (2010). Cowles Foundation Discussion Papers. 2091.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2091